Qualified employee achievement award programs (QEAAPs) are nontaxable fringe benefit programs that reward employees achievements.
- The plan must be written.
- The plan cannot discriminate in favor of highly compensated employees.
- Individual awards valued up to $400 will qualify, but employees can receive up to $1,600 of cumulative awards in a plan year.
- The average cost of all awards given under the plan annually cannot exceed $400 per employee.
- The awards must be a type of approved tangible personal property.
Who can participate in a QEAPP?
Any company with employees can create a QEAPP but only in S-Corp (1120s) entities can owners be included in the program as employees.
What cannot be included in a QEAPP?
As stated above the awards must be tangible personal property. Prior to 2018, the definition of “tangible personal property” was quite broad, but when Congress passed the Tax Cuts and Jobs Act (TCJA), eligible achievement awards became more limited. Under its new definition, from 2018 through 2026, tangible personal property does not include:
- Event tickets
- Gift cards
What can be included in a QEAPP?
Tangible personal property according to the TCJA includes:
- Home goods
One way to provide these benefits is to off a digital catalog, for example via Amazon has an option for employers to offer employees preselected items. The employees can then choose what items they would like to receive up to the dollar amount specified for the reward they are receiving.
What are some examples of achievements for a QEAAP?
The plan can include a variety of achievements of various sizes such as:
- Revenue generation
- Reviews from clients
- Introduction of new protocols that make the company more profitable
- Reduction of employee turnover
- Customer satisfaction
- Cost-savings measures
- New product innovations
- Successful campaigns
- Long-term project completion
- Hiring top talent
- Successful expansion efforts
- Hitting targets
- Corporate outreach
- Risk mitigation
- Safety standards including Covid, cybersecurity, handling of materials
What are the tax benefits of a QEAPP?
Like other nontaxable fringe benefits, awards given under QEAAPs are deductible to the business and nontaxable to the employee. This means businesses will report lower taxable income, owners will report lower self-employment taxes and the awards will not produce additional payroll taxes for the employer or the employee.